Halloween awakens some of our greatest fears — from ghosts and haunted houses to scary movies — but financial fears are another common source of stress and concern that have been known to keep people up at night. In fact, the American Psychological Association regularly ranks money as one of the top stressors in America. Additionally, a recent study from Gallup found that nearly six in 10 Americans worry about paying for an unexpected accident and having enough money for retirement, among other concerns.
Here are three of the most common money-related fears and some advice to help you overcome them.
Fear #1: I’ll run out of money in retirement
It should come as no surprise that the fear of outliving retirement savings is chief among financial concerns for many adults. This is especially true today when people are living longer, and nest eggs may need the ability to span upwards of three decades.
The best way to overcome this fear is to begin contributing to a 401(k) or IRA early and often. It is imperative that those with longer time horizons are saving for retirement, even if seeing the value is challenging. For those who are struggling with a shorter time horizon, you might consider picking up a part-time job in retirement. Having even a small income to supplement nest egg withdrawals can make a huge difference. Additionally, delaying social security until age 70 can result in larger monthly checks on top of the nest egg.
Fear #2: Unexpected events will drain my bank account
Whether it is a sickness, car accident, or natural disaster, many Americans are fearful of what might happen financially if they are the victim of an unexpected emergency. This concern is clearly warranted considering a recent report where only 39 percent of respondents indicated they had enough savings to cover a $1,000 setback.
To combat this common fear, I generally recommend establishing an emergency fund stocked with enough money to sustain living expenses for three to six months. In the event of an emergency, the fund gives you a buffer to pull from before turning to the nest egg and other longer-term savings accounts. The peace of mind that comes with knowing you have a safety net of cash is key to reducing that stress and apprehension.
Fear #3: I’ll lose all my money in the market
Many investors, from those with high-net-worth portfolios to the average person with a 401(k), lose sleep over market fluctuations and rhetoric predicting the next recession or crash. Calming this common fear is certainly not getting any easier we are wired for instant access and where the market seems to move with every headline or bit of news.
Investing certainly has its complexities, but sticking to a few “golden rules” can significantly reduce anxiety. First, stay diversified. By spreading assets out over multiple sectors, you can more effectively counter periods of volatility. Second, embrace the concept of “decades not days.” Investing is about the long-term. Reacting to every single short-term market mover will only serve to compound your fears. Finally, ensure risk is commensurate with age. Investors approaching retirement often worry about the impact of market movement on their fragile nest egg. Reducing risk with age can help keep the portfolio protected through periods of uncertainty.
Do not let financial fears get the best of you this Halloween. With a can-do attitude and a little bit of commitment, you might find that money management isn’t so scary after all. Happy Halloween!
Sabina Sewillo is a Family Wealth Advisor, Vice President and Financial Advisor with the Wealth Management Division of Morgan Stanley in Chicago. The information contained in this column is not a solicitation to purchase or sell investments.